Re-regulating power

Our view : Lawmakers face several options for lowering future energy bills, but the best entails a cautious approach to re-regulating the electricity supply

March 08, 2009

For Marylanders, this has been a winter of discontent. Anger over hefty heating bills is high while prospects for rate cuts are low. No wonder the term "re-regulation" has become a buzzword in Annapolis. It's not so much a matter of if the state will re-regulate energy, but how.

Such emotions - and expectations - need to be tempered. Not because a new regulatory approach is unjustified but because this complex matter of government's role in regulating the energy supply ought to be approached in a reasoned and cautious manner.

Let's face it: Nothing under consideration in Annapolis now is going to cause a large, immediate reduction in Baltimore Gas and Electric bills. Leaving aside perennial issues such as the inequities of the wholesale market and the region's congested power lines, the high prices consumers face are still largely a function of supply and demand. And while it's true the recession has driven down the price of natural gas and other fuels, it takes time for that to occur on the retail level because utilities such as BGE purchase energy through advance contracts that tend to soften price fluctuations up and down.

Why have so many consumers experienced drastically higher utility bills? The factors offered by BGE - a colder winter, a longer billing cycle and higher rates - surely have contributed. But we would withhold full judgment until an independent audit is conducted.

The General Assembly has essentially three choices in re-regulation: stand with the failed 1999 deregulation law, re-regulate existing and future energy production, or re-regulate the future only. It is this last option that appears to be the most sensible choice.

What would re-regulation entail? The Maryland Public Service Commission would be given the option of ordering utilities to build power plants if that's determined to be in the interest of ratepayers. In a deregulated market, producers expand only when it's profitable, and never for the purpose of reducing energy prices.

Re-regulating existing generation is, at best, a backward-looking policy that could mean one day ordering producers to sell their power plants. That's an iffy strategy, particularly as the nation adopts policies related to climate change that are bound to discourage coal-fired plants like those owned by Constellation Energy. After selling many of these assets for too little a decade ago, why would ratepayers want to risk paying too much for them now? Or to put it another way, who thinks the PSC will forecast the future any better than it did in 1999?

Gov. Martin O'Malley has offered a partial re-regulation plan to the legislature. He's on the right track - although we'd like to see the PSC first produce a road map of Maryland's energy needs over the next five years. State regulators might discover it's not in ratepayers' interests to order BGE to develop new generation any time soon, but it's good to have that option available in the future.

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